Australia's central bank governor urges fiscal restraint

Australia’s central bank governor Glenn Stevens Saturday urged politicians to work together to address the growing gap between fiscal spending and revenue, as the government battles to push through massive budget cuts.

In a rare newspaper interview, Stevens told The Australian “financial markets might not be so forgiving as they are now” if the country did not start to manage its budget “in a measured way”.

The Reserve Bank governor’s comments followed a chaotic week in Australia’s upper house that saw the conservative government’s attempt to repeal a carbon tax fail when a minor party withdrew its support.

The government needs the backing of minor party senators to pass the repeal as well as support the spending cuts it has planned to bring the budget under control.

Stevens said while Australians have supported recent spending plans for education and disability, “we didn’t actually vote for the revenue to fund them just yet and so that’s the kind of fundamental issue that will emerge more clearly in a few years time”.

“The main point simply is, there is a medium-term issue which will grow if it’s not addressed.

“And it would be best to be agreeing on measures now that will address it over time, rather than let it fester and be faced with more genuinely draconian measures at some later day.”

The Labor and Greens opposition parties have criticised the governing Liberal Party for the tough budget measures that cut back on welfare and spending.

Thousands of people across Australia have also taken part in rallies protesting against the budget.

Prime Minister Tony Abbott defended his maiden budget Saturday and told a party conference he was “not put off by a bad headline and one or two parliamentary difficulties”.

The Reserve Bank has kept interest rates on hold at a record low of 2.5 percent since August to support an economy exiting an unprecedented boom in the mining sector, which has helped Australia to avoid a recession for more than two decades.

Stevens also warned against complacency about the extended period of growth, saying Australia was not a “miracle economy”.

“It’s a myth really that this economy doesn’t have downturns, we do have them, we will have them,” he said.

“We should be doing what we can to give us the chance (that) the future downturns are short and shallow.”